Quote from: franky1 on November 14, 2013, 10:01:56 PM

all its for is to increase the ability to see the source of funds. much like banks look at serial numbers of bank notes to see if they come up with flags that funds once got blacklisted/marked as part of a drugs cartel blackmarket

This is not about crime, nor identifying perpetrators, its about fungibility, they are (perhaps surprisingly) orthogonal payment system properties.

An electronic cash system, must have irrevocability, which as we discussed here is how bitcoin can achieve low cost and efficiency relative to credit cards & paypal. Coin anonymity is necessary for fungibility, but that is strictly about fungibility, identity level privacy is separate.

Bitcoin makes attempts to achieve irrevocability via blockchain hardening (so it is expensive to undo or change the transaction) and also via using fresh addresses to add coin-level anonymity. CoinJoin and mixes are technical solutions to improve on just using fresh addresses.

However that does not mean the user is anonymous. The user is identified because they have an identity, they interact with multiple coins and identify themselves to businesses. Police investigators can ask normal businesses they interact with to identify them. And users identify themselves via street address for delivery, IP address (unless using Tor), username/password on web site, and email address for receipt, bank account for exchange, AML/KYC identities at the exchanges, geo-location of their smart phone, IP address log of their DSL connection, and (without CoinJoin) because their payments link different addresses when a transaction is made using multiple coins, and change is given.

The bitcoin user is far from anonymous. The full transaction log is public. (Bitcoin really is not that private nor anonymous: if someone offered to make your bank account or credit card statement as public as bitcoin does we would be angry about it.)

As I said in the original post:

Quote from: adam3us

If they want to certify users, they should do that as optional KYC, AML certificates that regulated merchants in respective jurisdictions can request, which could be attached to wallets/identities, not to fully fungible coins.

Now in an ideal world how it is supposed to work is the fungibility/anonymity is secure like zerocoin. And identity is managed between people sending and receiving bitcoin. Many variants are possible:

1. public (everyone can see amount, and sender/recipient addresses - current bitcoin)
2. private (encrypted so only recipients see value and address information)
3. private but identified (encrypted between recipients, but recipient and/or sender is identified)

I prefer user choice of 2 or 3. We use SSL for web commerce for a reason, confidentiality of the transaction, and bitcoin does not encrypt transactions. It means only parties to the communication see the value and decide what level of identification they want if any. This supports buying ebooks without a dossier of what books you read. Its no ones business. And it supports AML/KYC for large for regulated businesses. And identifying the customer account so the business can account eg with repeat customers. And it supports criminal investigation also. The police go subpoena information from businesses the criminal interacted with to track him down. Same as in real life.

(This is what committed transactions try to do, though it so far has inefficiencies for SPV, and has imperfect privacy as people on the transaction see previous transactions; however it is much more efficient than zerocoin.)

The problem with Coin Validation arises because bitcoins coin-level fungibility/anonymity is imperfect, so it is somewhat possible to correlate users via coins. It depends if the user follows technical advice, what wallet they use, and if they use coin privcacy enhancing tools like coinjoin.
There are two approaches: cryptography like zerocoin/committed tx; and stirring coins together like coinjoin and mixes - so their whitelist attempts see a jumble of spagetti and reject all transactions and so are ignored. CoinJoin works now the others are future projects.

Bitcoin identification is also adhoc. However any regulated bitcoin processor asks for AML. Most business sites will have an address for delivery, an email for a receipt, an IP address from the web, cookies linking to other sites. Hence my suggestion to them: issue AML certs in their jurisdiction that the user can show when requested its the sane way to do it within the architecture of an ecash system without destroying its fungibility and hence destroying the currency itself.

(btw fungibility to the other reader, has a second standard meaning: that each coin should be considered equal value).

Quote

the only difference is that coinvalidation will make it easier for bitstamp to recognise a 1-2-3-4-or 5 hop TXID as coming from a notorious website to then assess the requirement to report it to fincen.

I hope contrarily that to quote John Gilmore the internet views Coin Validation as censorship and routes around it. Meaning the coin graph is stirred to a blur via coinjoin integration in all major clients, or Matthew Green & Ian Miers figure out a faster zerocoin or something else figures something else out.

Please do not feed the "oh but the criminals" meme. We're not encouraging or facilitating crime. Before it was shutdown silk road accounted for < 1% of transaction volume/month and falling. Paper cash has worse statistics and is less traceable. HSBC laundered $880m of dirty money for drug cartels and worse, and walked away with a fine, no sanctions. http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211

We just want an efficient fungible payment system that works without the reputation (equifax etc) costs and revocability (credit card charge backs, paypal freezes etc) that come with credit cards and paypal. Do NOT invite currency destruction via fungibility attacks it WILL pull the costs up to credit cards and paypal levels.

Adam